29 August 2002

Hon Dr Michael Cullen
Speech Notes
Thursday, 12.15pm

Speech to Wellington North Rotary Club

Thank you for the opportunity to speak to you today and to welcome you to the Beehive. Unlike other recent arrivals in this place, you will not be required to sort yourselves into alphabetical order.

New MPs often liken their first few days here to starting school. For the 2002 intake, that resonance will be especially strong. The jostling for position on the Opposition benches has done nothing to raise Parliament’s reputation in the eyes of the public or to increase the public’s confidence that the House will work smoothly.

But I am confident not only that the 47th Parliament will work but that it will work more effectively than the previous Parliament even though the government commands fewer votes than we had last time. The difference is that we have been able to secure a stronger agreement with United Future on House management than we were able to extract last term from the Greens.

Peter Dunne understands well how Parliament works and the need for support on procedural matters so I am hopeful that we will be able to negotiate a little more use of urgency than when we needed the consent of the Greens.

Urgency is poorly understood outside the confines of Parliament. It is not a perversion of the democratic process but a necessary function of it as the regular sitting hours of Parliament are simply not sufficient – and were not intended to be sufficient – to get a legislative programme through.

This Parliament has inherited a large backlog of around 100 pieces of legislation from the last Parliament. I hope to make early progress on pushing the more urgent of those bills through.

The new government’s stability is built on three agreements: a full coalition agreement with Jim Anderton’s Progressive Coalition; an agreement with United Future which ensures us a majority in Parliament on confidence and supply motions over the next three years; and an agreement with the Greens to cooperate and consult across a range of policy issues.

This – truly - is MMP at work.

But although the architecture of this government is a little more elaborate than what we had last term, the basic structure is the same in that - once again - Labour leads a minority coalition. This continuity is not surprising as it was evident through the election campaign that there was no great thirst in the electorate for radical change.

Broadly the message from the opinion polls and the election result was that the public was generally satisfied with Labour’s performance in government and with its policy direction and wanted to see them continued.

We will deliver on both these expectations, and deliver generously. In the Speech from the Throne outlining the government’s priorities for the term we recommitted ourselves to the goal of restoring New Zealand to the top half of the developed world.

The Pre-election fiscal and economic forecasts have growth slowing a little from where it has been but continuing to average around 3 per cent over the next four years, unemployment remaining at its current low levels, employment increasing steadily and wages growing ahead of inflation without triggering an inflationary spiral.

The downside risks to those forecasts have increased since late June when the Prefu was published as the outlook for the international economy, particularly the United States, has become more uncertain. It is too early to judge the extent to which the turmoil on the US stock market will affect New Zealand.

However the resilience shown by New Zealand through the global downturn in 2001 is a useful reminder against mechanically extrapolating external developments through to New Zealand. And the evidence still points to an economy in good shape.

The latest National Bank regional trends survey, for example, shows average growth across the country of 2.7 percent in the first half of this year. Wellington was a little behind the trend on 1.6 percent but Wellington led the June survey in business confidence and was third highest of the 14 regions in consumer confidence so it may be that the region is about to begin moving ahead a little faster.

The important point I want to make to you today is that the government’s policy programme is about building strength over the long term and that we will ride through any short term economic turbulence and will allow the automatic stabilisers to work.

As a first step toward restoring New Zealand to the first half of the OECD, we need to raise our sustainable growth rate to 4 percent.

This is not an easy target but it is not impossible either. To get there we need to increase the total factor – that is capital and labour – productivity growth rate from an historical level of just over 1 percent to 2 percent. Changes of that magnitude or to that level are not that rare and have recently been achieved by Australia, Ireland and Finland.

I have already stated my intention to negotiate a new Policy Targets Agreement with Dr Alan Bollard as Governor Designate of the Reserve Bank which will reflect the government’s wish that monetary policy outcomes move closer to those of Australia.

I have also promised a joint focus from the economic ministers – myself, Jim Anderton, Pete Hodgson, Paul Swain and John Tamihere, primarily – on how to make life easier for small and medium sized businesses.

Any growth strategy if it is to succeed must have regard to the fact that the great majority of New Zealand firms are small. Compliance costs can weigh particularly heavily on the small business and can absorb huge amounts of time.

It was in recognition of this that I floated the idea last week of getting officials from the big compliance departments – notably the Ministry of Commerce and the IRD – to work among small businesses and do their compliance work for them so that they can get first hand experience of what is involved.

The suggestion has attracted a lot of interest and support – certainly sufficient to justify further examination. We will also be examining whether current legal forms available to small business are appropriate, and developing ways of reducing the tax impact on businesses during different phases of their life cycles.

Other measures to reduce compliance costs are before Parliament. They include: clarifying the rules relating to transfers of overpaid tax, reducing the number of taxpayers exposed to use-of-money interest and allowing the pooling of tax payments. We expect this legislation to be enacted this year.

We will also be looking at the payment dates of various taxes to see if there would be benefit in aligning them.

Looking more broadly than taxation, the government is actively considering a range of measures to reduce business compliance costs, including:
Making the Internet the dominant means of accessing government information, services and processes.
Simplifying ACC levies and claims processes.
Improving the quality and implementation of regulations, in particular the Resource Management Act.
Introducing a new requirement for a business compliance cost statement to be published as part of all new legislation that has compliance cost consequences.
But I don’t want to raise expectations too high because compliance costs are the product of living in a civilised society to a significant extent. We don’t want people tipping their oil down the drain. Where you have no compliance costs it is because you have no rules.

The Treasury Briefing Papers to the Incoming Government, released yesterday, identify three main pillars to the government’s growth strategy – investment, innovation and global connectedness.

The Treasury’s analysis borrows from and has informed the government’s strategic approach and will continue to do so. This term we will continue to support research and development and will seek through the Innovation and Growth Framework to strengthen the connections needed to convert a good idea into a commercial success.

We will expand our connectedness to the global economy in three ways: through the Doha round and by developing our bilateral trade agreements with other countries, by attracting foreign investment into New Zealand and by introducing new support mechanisms for exporters.

A ‘beach head’ programme will be established to create incubators for small or medium sized businesses trying to establish themselves in strategic overseas markets.

Existing programmes will be monitored and evaluated to ensure they are meeting market needs. Trade New Zealand and Industry New Zealand’s operations will be integrated progressively. Government support for trade missions and delegations will be increased.

In the investment area, we will continue to promote the diversification of the Government Superannuation Fund and the Natural Disaster Fund and will build up the New Zealand Superannuation Fund.

This now contains $805 million and money is being fed into it at the rate of $46 million a fortnight. The Fund has been sitting in the Debt Management Office of the Treasury pending the appointment of the Board of Guardians which will be responsible for setting the Fund’s investment policies and appointing the fund managers.

The appointments were held up by the election but went through this week so the Fund should soon be in a position to enter the market. Decisions on the investment mix, including what proportion should be invested in New Zealand, are for the Board to make.

It would be totally inappropriate for me to try to direct them and would be deadly to the Fund’s integrity and even - possibly - to its viability. However it will develop into a very large fund so, even if only a very small part of it is invested in New Zealand, it will still deepen significantly our capital markets.

But our biggest resource is and always will be our people. This government has identified increasing the quality and quantity of our human capital as our highest priority.

The New Zealand labour market is performing well and over the last decade has produced employment growth among the best in the OECD. Immigration has been an important part of that success story But we need to improve the productivity of the workforce.

One of our problems is that, for a highly developed country, we have a long tail.
Around 20 percent of school leavers leave without any qualifications and large numbers are leaving as soon as they hit 17, or even earlier. The realities behind that statistic have to be addressed through a comprehensive mix of policies directed at different life stages.

The government began work on all these fronts last term and will continue that strong commitment this term. We will continue to improve access to early childhood education, especially for low income and remote communities. We will continue to invest in numeracy and literacy programmes in our schools.

At tertiary level, we will introduce a funding regime that rewards excellence and that reflects the country’s strategic and economic priorities. In our last term, we did a lot to reduce the barriers to participation. This term we will seek to improve accessibility further by undertaking a thorough review of student support including extending student allowances and developing a system of maximum fees.

We will also continue to invest heavily in trade and industry training through such initiatives as the Modern Apprenticeship scheme and the Gateway school to work programme.
As a Labour-led government, issues of participation matter to us not only because of their economic relevance but because of their impact on both individual opportunity and social cohesion.

In our first term, we redefined the role of the government in the economy and developed a range of tools to realise our vision of a smart, active government working in partnership with the private sector. This term, we will build on that platform.

I look forward to your cooperation in the task ahead. Thank you.

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